Why Did the US Federal Reserve Unprecedentedly Offer Swap Lines to Emerging Market Economies during the Global Financial Crisis? Can We Expect Them Again in the Future?

Hyoung-kyu Chey

No 11-18, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: This paper provides a political economy analysis of why the US Federal Reserve unprecedentedly established temporary reciprocal swap lines with a select four emerging market economies during the global financial crisis of 2008-09, thus acting as global lender of last resort for US dollars. It argues that the swap lines reflected the great US need to reinforce its ties with major emerging market economies at that time, when a new global economic governance system had emerged—led by the Group of Twenty, which encompassed these economies among its members. Yet it also stresses the uniqueness of the international situation at that time, implying a low likelihood of the Federal Reserve providing swap lines for emerging market economies again in future systemic crises, and the need therefore to further strengthen the global financial safety net.

Pages: 15 pages
Date: 2012-03
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